$120-150bn needed by 2012 in energy sector

$120-150bn needed by 2012 in energy sector

New Delhi: The Indian energy sector is showing rich potential for investment in diverse streams, driven by a surging economy, resultant demand-supply gap in short run and need to achieve sustainability and self-sufficiency in the long run.

A long-term vision and adequate policy and regulatory support would be necessary to realize this potential, according to a report on ‘India Energy Inc.- emerging opportunities & challenges’ jointly released by CII and KPMG.

By global standards, India’s current level of energy consumption is very low. For the year 2004 – 05, total annual energy consumption for India was estimated at 572 Mtoe (million tons oil equivalent) and per capita consumption at 531 kgoe (kilograms oil equivalent).

With a target GDP growth rate of 8-10% and an estimated energy elasticity of 0.80, energy requirement is expected to grow at 6.4-8.0%. This would mean a five-fold increase in India’s energy requirement over the next 25 years.

Key Findings

* India’s power and upstream energy sectors need investments of upto $120–150 billion over the next five years

* There is need for strong private sector participation to complement public sector and to bring in required capabilities and technologies

* Policies have increasingly recognized the need to promote private investment; private interest in captive coal mining, oil and gas exploration and in power sector have shown significant progress and are envisaged in nuclear sector

* Energy transport infrastructure such as ports, railways, pipelines and power transmission networks need significant investment

* Tariff reform in energy sector and distribution reform in power sector are two important steps that need to be successfully carried out - tariff reform to phase out subsidies or to target them effectively and distribution reforms to bring efficiency in power sector will be vital

* Along with private participation, there is a move to bring in market mechanisms in energy sector under an independent regulatory oversight; gradual approach needed till supply side position improves and more players enter the sector so that markets can work effectively

* Report highlights key opportunities in oil, coal, gas, nuclear, hydro and renewable energy

Recommendations

* To meet its large and growing energy needs, there are certain key imperatives for the Indian energy sector:

- Private sector investment needs to complement public sector - government initiatives in taking right steps to attract private players; this will need investments of $120 to 150 billion over the next five years

- Encourage market mechanisms with credible and independent regulatory oversight

- Reduce vulnerability to price and supply shocks - biggest challenge is to replace coal (exhaustible in 40 years), representing 51% of the energy basket, and oil which is heavily dependent on international supply in short term towards Natural Gas, Hydro and renewable sources

- Diversify the basket, enhance domestic production and take equity positions in energy resources abroad to reduce effects of fuel price shocks

- Bring in efficiency and enhance capacity in energy transport infrastructure

- Bring in tariff and power sector reform

- Provide government support for energy efficiency

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